MOSCOW: Russia’s central bank raised its main interest rate much more than expected yesterday, trying to tackle a sliding rouble and climbing inflation as plunging global oil prices and Western sanctions hurt the economy.
However, the bank said that it had not changed its rouble exchange rate intervention policy, confounding speculation that it might use Friday’s meeting to announce changes that would have enabled a stronger defence of the rouble.
The 1.5 percentage point increase, which takes the one-week minimum auction repo rate to 9.5 percent, compares with analysts’ forecasts of a half-point rise in a Reuters poll this week.
The decision of the central Bank of Russia (CBR) brings the cumulative increase this year to four percentage points, despite the economy’s weakness.
“This represents a pretty bold move by the CBR to regain the initiative, having been faced with a collapse of their currency,” said Neil Shearing, chief emerging markets economist at Capital Economics. “The question is will it work?”
“I expect the market will keep testing the central bank. A consequence of this will be continued rouble weakness.”
In a separate statement, the bank said it had not changed its exchange rate intervention policy, which involves keeping the currency within a nine-rouble-wide band against a dollar-euro basket. The bank plans to scrap the band at the end of this year when it floats the rouble.
There had been speculation that the bank might use Friday’s meeting to scrap the band ahead of schedule, or bring in a more discretionary policy that would enable bigger interventions.
“My concern is that the pressure on the rouble that we saw before this was hardly the result of interest rates being too low,” said VTB Capital economist Vladimir Kolychev. “I very much want to believe that this (rate rise) will help the rouble. If not, then the central bank will have to change its exchange rate policy.”
The central bank has been under pressure to raise rates to defend the rouble, which has shed around 20 percent against the dollar since mid-year due to falling prices of oil, a major export earner, and the sanctions imposed over Russia’s actions in Ukraine.
The move appeared to do little to buttress the Russian currency, even though higher rates should make it more attractive to hold deposits and other instruments in roubles. At 1232 GMT the rouble was down 3.1 percent on the day against the dollar at 42.92, doubling its loss compared with at the time of the rate decision.
Reuters
